Susan McGalla, President and Chief Merchandising Officer of American Eagle Outfitters, Inc. (AEO), was taught growing up that she was a person, not a man or a woman. She lived with her two brothers in East Liverpool, Ohio, where her dad was known as one of the town’s football coaches. Susan’s upbringing gave her the strength needed to lead one of the largest teen retailers as President and Chief Merchandising Officer.
In the middle of 2005, Susan was put in charge of designing, merchandising, and marketing the clothes that are now seen on teens all over country. Even though Susan felt like the other management was judging her, she never let it hinder her from sharing new ideas.
Susan, it’s been said, has a way of making people take a second look by moving beyond the ordinary. When leading a celebration to announce the retailer’s move to the South Side, for example, she wore jeans instead of the usual business clothes. Would you ever do that? Actually, just being a woman entrepreneur has turned heads, but she has always been careful not to play “the woman card” when dealing with tough situations.
If you’re thinking about investing in American Eagle, here are some things you should know:
Insider Transactions: Recently one of American Eagle’s directors purchased over $20 million worth of stock. This bodes well for shareholders as it shows the confidence management has in their company.
Recent News: The Company announced a new line of workout wear designed for 15 to 25 year old girls. The new concept complements the company’s aerie product line, which has been successful since its launch last year.
Balance Sheet: American Eagle has $760 million in cash and cash equivalents with no debt and a 23% three-year return on capital. This is not to mention its 71% three-year return on incremental investment.
Current season: The Christmas season is upon us, which is particularly exciting for retailers like American Eagle. Analysts are predicting as high as a $0.71 earnings per share (EPS) for the fourth quarter of 2007.
As with Xerox, a negative movement in the economy will most likely significantly hurt American Eagle since their clothing is higher priced and considered a luxury by many American families. But if the economy doesn’t fall into a recession, shareholders could see gains up towards 60% in the next year based on the industry average P/E of 17.2.
Bottom Line: American Eagle’s shares are considerably undervalued, and the company has great upside potential. The large insider transaction shows that even management acknowledges this. Who would know the company better than those in charge?
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